## Intel has an opportunity to supply semiconductor integrated circuit boards

Intel has an opportunity to supply semiconductor integrated circuit boards (sicb) to Hewlett Packard (hp). Hewlett Packard will pay \$6 million upfront i.e. when the contract is signed and \$2.49 million for the first year, \$1 million for the second year and \$8.5 million in the third year. Intel had obtained loan from Goldman Sachs (an investment bank) prior to the initial payment from hp and invest \$4 million from it at the beginning of the project. Subsequently, Intel spend \$3 million, \$9 million, \$3 million, 2.77million, and \$3 million as running cost for the first, second, third, fourth and fifth year respectively. Hewlett Packard will take delivery of the semiconductor integrated circuit boards during year 4, and agrees to pay \$3 million at the end of that year and the \$ 5 million balance at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum attractive rate of return (MARR) will determine if Intel will continue to sustain their current staff strength or they will cede to the option of downsizing after the completion of the 5 year deal. Intel management request her project management team to conduct an economic analysis on the proposed venture (project) so that they can be better informed on policy formulation in readiness for any exigency that may result from the project. These exigencies include but not limited to staff downsizing, staff retainment, salary freezing, salary cut or closing down some of their plants since they are multinational company. The project management team is planning to approach the task as follows:

1. Generate a table depicting the cash flow estimates for the Project
2. Draw the cash flow diagram for the cash flow estimates
3. Determine the number of rates of return values this project is likely to have.
4. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0 % to 100 %, step increase of 5 %)
5. Evaluate the Internal Rate of Return (IRR) for the zero net present worth using Microsoft Excel Spreadsheet
6. Intel management have set a MARR of 15% for any of their project; will you advised Intel to embark on this project knowing the net positive cash flow received from Hewlett Packard is reinvested at 14% . The loan Intel obtained from Goldman Sachs for the production of the semiconductor circuit board is borrowed at a rate of 7 %.
7. Evaluate the total present, annual and future worth of the project and use these values besides the rate of return value as part of your metric to determine the viability of the project.

1. Generate a table depicting the cash flow estimates for the Project.

The first step is to generate a table that depicts the cash flow estimates for the project. This table should include the following information:

• The initial investment (loan from Goldman Sachs)
• The annual revenue from Hewlett Packard
• The annual running costs
• The terminal value (the value of the project at the end of the 5-year period)

The following is an example of a cash flow table for the proposed venture:

 Year Cash flow 0 -\$4,000,000 (initial investment) 1 \$2,490,000 2 \$1,000,000 3 \$8,500,000 4 \$3,000,000 5 \$5,000,000 (terminal value)

1. Draw the cash flow diagram for the cash flow estimates.

The next step is to draw a cash flow diagram for the cash flow estimates. This diagram will help to visualize the cash flows and to identify the timing of the cash flows.

The following is an example of a cash flow diagram for the proposed venture:

Year | Cash flow

——- | ——–

0 | -\$4,000,000

(-4,000,000)

1 | \$2,490,000

2 | \$1,000,000

3 | \$8,500,000

4 | \$3,000,000

5 | \$5,000,000

1. Determine the number of rates of return values this project is likely to have.

The final step is to determine the number of rates of return values this project is likely to have. The project’s rate of return is the return on investment that the project generates. The project’s rate of return can be calculated using the following formula:

Rate of return = (Net present value)/(Initial investment)

The net present value (NPV) is the present value of the project’s future cash flows. The initial investment is the amount of money that is invested in the project at the beginning of the project.

The project’s rate of return can have multiple values if the project has multiple cash flow streams. In this case, the project’s rate of return will be the internal rate of return (IRR). The IRR is the discount rate that makes the NPV of the project equal to zero.

The project management team can use a financial calculator or a spreadsheet to calculate the project’s IRR. The IRR can also be determined using trial and error.

Once the project’s IRR has been determined, the project management team can compare the IRR to the MARR. The MARR is the minimum acceptable rate of return for the project. If the IRR is greater than the MARR, then the project is considered to be financially viable. If the IRR is less than the MARR, then the project is not considered to be financially viable.

By following these steps, the project management team can conduct an economic analysis on the proposed venture and determine whether or not the project is financially viable.